Will GM and Volkswagen Eventually Become Chinese Companies?

Will GM and Volkswagen Eventually Become Chinese Companies?

Topics: General Motors, Volkswagen

Will GM and Volkswagen Eventually Become Chinese Companies?

Jason Lancaster
July 19, 2013

Unless you've been living under a rock for the last decade, you probably know that the next great automotive boom is happening right now in China. This market is already the largest in the world in terms of vehicles sold, and it's quickly becoming the largest in terms of revenue as well...and it's still growing!

For large automakers like GM and VW with extensive operations in China, the country could one day become home to their largest number of employees as well as their biggest production facilities. Depending on how you view these sorts of things, GM and VW could one day essentially become Chinese automakers.

GM Could Become Chinese?

How do you define an automaker? Are they defined by where they were founded, or by where they do business? Buick sells more vehicles in China than they do in any market in the world. Buick has a design facility and a large production footprint in China, and when new Buick models are designed, they often debut in China. Yet many consider Buick an American company because it was founded in the United States...does that make sense?

When General Motors filed bankruptcy in 2009, Buick survived while Pontiac and Saturn were shut down. The reason? Buick's popularity in China. From AdAge.com:

“While at first glance it may seem as if Buick should have [been closed down] rather than Saturn...Buick is thriving in China.”

General Motors closed down Saturn instead of Buick, despite the fact that the Saturn brand had more sales in the USA. Buick's success in China literally saved the brand from extinction. If that doesn't make Buick a Chinese automaker, what does?

What's more, if you look at the opportunity for growth of the Buick brand in China and GM's current reliance upon sales in the Chinese market – GM says their Chinese sales may reach 3 million units this year and 5 million by 2015 – GM's sales in China will likely exceed their sales in any other market in the world. The automaker is also spending $11 billion on new plants to increase production in China, and aiming to add 400 sales outlets according to Bloomberg.

Unless GM can stop losing share in the United States and Europe, it would seem that GM's transition from an American company to a Chinese company is all but certain.

What About VW?

Volkswagen has also seen a dramatic increase in sales in China during the last few years. For the first half of 2013, Chinese VW sales increased by 18.7 percent. If you look at how many cars VW sold worldwide in 2012 (9.07 million) and how many of those were sold in China (2.81 million), it doesn't take a degree in mathematics to see that VW will soon become reliant upon Chinese sales for the bulk of their business.

More interestingly, Volkswagen's 2.81 million car sales in China in 2012 nearly matched their sales in Western Europe and German combined (3.03 million). In 2013, VW's sales in China all are but certain to exceed the company's sales in any other market (see FoxNews.com news report for more details).

Much like GM, Volkswagen has numerous investments in China, from design centers to factories to hundreds or sales outlets.

China's Car Market Is No Joke

GM and VW currently enjoy incredible success in the world's largest car market, and the party doesn't look like it's going to end anytime soon. The World Bank says that Chinese car ownership rates are about 58 vehicles per 1,000 people. If you compare that figure to a mature automotive market like the USA, which has car ownership rates around 800 vehicles per 1,000 people, the potential for growth in Chinese car sales is hard to imagine.

For large automakers like VW and GM who have been taking a beating in their traditional “home” markets, China must seem like a gold mine. With incredible sales growth on the horizon, it's easy to see why GM and VW are focused on selling cars in China...and why we might someday thing of these two automakers as Chinese companies.

Author Jason Lancaster has been to China, having visited Beijing, Shanghai, and Hong Kong in 2008. When Jason isn't traveling to the Far East, he's working with VW Parts Vortex, a website that sells discounted VW parts online.